Syngenta (Basel) on Friday rejected an offer from Monsanto to buy the Swiss-based agrochemicals and seeds group for just over $45 billion. The company says that the unsolicited offer “fundamentally undervalues Syngenta’s prospects and underestimates the significant execution risks, including regulatory and public scrutiny at many levels in many countries.” The company adds that Monsanto’s proposal “does not reflect the outstanding growth prospects of Syngenta’s integrated strategy and the significant future value potential of the company’s crop-focused innovation and market-leading positions.”
Syngenta confirmed in a statement on Friday that Monsanto had offered to buy it for 449 Swiss francs ($484.9) per share, with approximately 45% in cash, a premium of 35% to the Swiss company’s closing price on Thursday. However, the Syngenta statement, in describing the rejected offer as “preliminary,” appears to leave the door open to further talks or for Monsanto to make a higher offer. Such a deal, were it to happen, would combine the world’s largest seeds company, Monsanto, with the world’s largest producer of crop protection chemicals and third largest seeds producer to create an agricultural supplies giant with sales of more than $31 billion.
News of Monsanto’s interest in Syngenta first emerged in June last year, but a deal did not materialize, owing to Syngenta’s concerns about the strategic fit between the two companies, antitrust issues, and Monsanto’s plans for a so-called tax inversion. However, the potential synergies seem clear. Monsanto’s business is about 80% seeds and 20% agrochemicals, for instance, while Syngenta’s is almost exactly the opposite. Moreover, a deal, if structured appropriately, could also bring Monsanto considerable tax benefits by enabling the US firm to rebase its headquarters in and route its international revenues through Switzerland.
Bernstein Research (London), in a recent report, estimated the potential cost savings in a Monsanto-Syngenta combination at $300 million-$600 million and the tax benefits at $250 million-$500 million. However, the US government last year introduced regulations to clamp down on such tax inversions.
In addition, the antitrust implications of such a merger would be enormous, if not insuperable, in the views of many industry analysts. This is implicitly acknowledged in the Syngenta statement in response to the offer.The biggest concern would be an unprecedented market share in soybeans and corn seeds for the combined company in North America. The market share in corn, for instance, would be about 42%, Bernstein estimates. Bloomberg reports that Monsanto has already drawn up plans for the sale of parts of the two companies’ businesses to potential address antitrust issues.
Industry analysts say that Syngenta’s operations in areas of concern could appeal to a range of buyers including DuPont, Dow Chemical, BASF and Bayer. Even private-equity firms could look at some businesses. The analysts add that a successful bid by Monsanto for Syngenta could also unlock a further restructuring of the agrochemicals industry, with Dow Chemical’s agchems unit a target for potential suitors.
Michel Demaré, Syngenta chairman said, “While Syngenta’s valuation is currently affected by short-term currency and commodity price movements, the business outlook is strong, with emerging markets accounting for over 50% of our sales. Our integrated strategy has been particularly successful in these markets which in 2014 registered double-digit growth rates for the fifth consecutive year, and which represent a major part of the future growth potential for our industry. Recently launched new products are achieving rapid sales growth globally as growers demand the latest technologies, and we have a strong pipeline of innovative crop protection products in development, which have total peak sales potential of over $3 billion.
“In 2015, we are on track to achieve the first $265 million of savings from our Accelerating Operational Leverage Program, and we are targeting savings of $1 billion in 2018. This will allow us to realize the full benefits of the integrated strategy and will ensure that increases in profitability are sustained for the benefit of Syngenta’s shareholders.”
According to Bloomberg, Morgan Stanley is acting as adviser to Monsanto and Goldman Sachs to Syngenta in the matter.
By Natasha Alperowicz
